F&N Malaysia backtracks on price rises and focuses on NPD amidst sugar tax blow

29-Jan-2019 - Last updated on 29-Jan-2019 at 03:08 GMT

Fraser and Neave Holdings Bhd (F&N) is hoping to speed up its healthy product innovations instead of resorting to increasing its product prices in order to alleviate the impact of Malaysia’s upcoming sugar tax, said its chief executive. ©F&N

The company has allocated RM30mn (US$7.3mn) for its capital expenditure in its FY ending September 30 2019, which is aimed at new product development.

Speaking after the company’s annual general meeting, F&N CEO Lim Yew Hoe said: “We are prioritising our efforts by focusing on product categories according to the significance of impact to our Group.

“Hence, we are investing RM30 million this year at our beverage plant this year to ramp up our capability in new product offerings and packaging formats.

“The extra capital expenditure in Shah Alam will enable new products to be produced from October 2019. It could be a few dozens of them.

“The opportunities are limitless and we are confident that our investments will enable us to accelerate the expansion into new categories and a more extensive portfolio of healthier options this year.”

He added that F&N is ‘supportive’ of the government’s move to promote the health and wellbeing of Malaysians, and that ‘F&N will focus on bringing the sugar content for most of [our] products to be below 5% while delivering the same great tastes’.

Citing the company’s 100PLUS Reduced Sugar with only 4g sugar per 100ml as an example, Lim said that this meant that 5g or less per 100ml was ‘within the company’s innovation range’.

“We will take this as opportunity to fast-track our product innovation in this area,” he added.

According to F&N’s official statement on the matter, it had invested ‘significant effort’ into developing healthier products ‘long before’ the government announced the tax.

“[F&N has been] reducing [the] sugar content of [our products] without compromising on taste, as well as increasing the range of product that meets the Healthier Choice Logo criteria by Malaysia Ministry of Health,” said the company.

“[We have] also reduced the sugar index (sugar amount in gram per ml of beverage) of [our] beverage portfolio by 34% since 2004 (from 9.5g per 100ml in 2004 to 6.3g per 100ml in 2018).”

F&N and sugar tax in Malaysia

Malaysian Finance Minister Lim Guan Eng announced last year that an excise tax of RM0.40 per litre will be enforced on sugar-sweetened beverages come April 1 2019.

“The duty proposed will be at RM0.40 per litre is to be implemented on 1 April 2019 for non-alcoholic beverages containing added sugars of more than 5gm per 100ml drink; and for fruit or vegetable juice containing added sugars of more than 12gm per 100ml drink,” said Minister Lim.

The announcement was met with trepidation by many of the country’s manufacturers including Coca-Cola and PepsiCo, commenting to FoodNavigator-Asia via the Federation of Malaysian Manufacturers Malaysian Food Manufacturing Group (FMM MAFMAG) that: “Selective taxation is not an effective policy response to promote a healthier lifestyle among consumers.”

F&N initially had a more extreme response to the tax announcement, with a possible price increase for some 90% of the company’s products being mentioned during its FY2018 financial results briefing.

“We all know [the sugar tax] is not going to be positive for industry players. For now, we need more details on the tax from the government before we are able to fully assess its impact on our business,” Lim had said.

It appears that F&N has done a reassessment and has a more optimistic outlook on the matter, hence is no longer looking at product price raising as its main option but more of a ‘last resort’.

“Volume growth from international markets has to some extent helped neutralize the top and bottom-line pressures and balance our currency exposure,” said Lim

“We are taking the challenge thrown to us by the government to improve the health [of consumers] by lowering the population’s sugar consumption.”

“When we take out sugar, we need to replace it with something else [to give us the same taste profile and the costs for these will be different].

“If we cannot absorb these costs, we will increase the price. [Right now], it is too early to say. [That said], increasing prices for consumers will be the last resort.”